The effect of the political connections of government bank CEOs on bank performance during the financial crisis

Hung Kun Chen, Yin Chi Liao, Chih-Yung Lin*, Ju Fang Yen

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

17 Scopus citations

Abstract

This study investigates how the political connections of government bank CEOs affected their banks’ performance during the 2007–2009 financial crisis. Examination of global data shows that government banks with politically connected CEOs experienced significantly higher loan default rates and worse operating performance during the crisis than those without politically connected CEOs. However, these politically connected CEOs were less likely than others to be penalized for the poor performance of their banks. Our evidence suggests that politically connected CEOs of government banks can influence a bank's lending decisions by using their political power and influence to relax lending standards and to reap private benefits that thus raise their banks’ sensitivity to a crisis.

Original languageEnglish
Pages (from-to)130-143
Number of pages14
JournalJournal of Financial Stability
Volume36
DOIs
StatePublished - 1 Jun 2018

Keywords

  • Country corruption and governance
  • Financial crisis
  • Government banks
  • Institutional ownership
  • Political connections

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